Nov. 9 (Bloomberg) -- Olympus Corp.’s admission that three
of its top executives colluded to hide losses from investors
fails to address the roles played by other officials, according
to the company’s biggest overseas shareholder.

The Japanese camera maker’s shares slumped by their daily
limit for a second day after it yesterday reversed weeks of
denials that there was any wrongdoing in its past acquisitions.
The company fired Executive Vice President Hisashi Mori over his
role in covering up the losses with former Chairman Tsuyoshi
Kikukawa, who resigned last week, and said auditor Hideo Yamada
would step down.

Olympus’ biggest overseas shareholder is now demanding
investor relations head Akihiro Nambu go too, because of his
role as a director of Gyrus Group Plc, the U.K. takeover target
used to funnel more than $600 million in inflated advisory fees
to a Cayman Islands fund. After Nambu, the rest of the board
must follow, said Josh Shores, a London-based principal for
Southeastern Asset Management Inc.

“Even if they didn’t know the specific details around
where payments were going and exactly why, they knew that cash
was going out the door and they also failed to raise their hands
to ask questions,” Shores said. “I don’t know who else is
involved, but somebody else is. There is a third party somewhere
who received this money.”

Cayman Links

Olympus plunged by 20 percent, or 150 yen, to close at 584
yen on the Tokyo Stock Exchange today. The stock tumbled 29
percent yesterday, as exchange rules limited it to a drop of 300
yen. A stock priced at less than 1,000 yen in the previous
trading day are limited to a decline of 150 yen.

Olympus President Shuichi Takayama yesterday said the
company was looking into the role played by special purpose
funds in hiding the losses, which date back to the 1990s. The
mechanism for hiding the losses is still under investigation, he
said.

At least eight Cayman Islands entities have been linked to
Olympus acquisitions that are suspected of playing a role in the
accounting scandal. Five of those no longer exist, according to
a search of the Caymans registry, which doesn’t give details on
the individuals behind the companies.

Kikukawa, Mori and Nambu became the three directors of
Gyrus in June 2008 following the $2 billion acquisition of the
U.K. medical equipment maker in February that year. They were
also directors of three companies set up to handle the takeover,
including the decision to pay out advisory fees that amounted to
more than a third of the acquisition’s value, filings show.

Allegations

Olympus declined a request to interview Kikukawa and Mori.
In six attempts to talk to Kikukawa at his home, the former
chairman didn’t appear. Mori’s home address given in U.K.
filings leads to a house under renovation in Kawasaki city,
about an hour from central Tokyo. Nobody answered the doorbell
on a recent visit to Nambu’s home in a seven-story condominium
about 27 kilometers (17 miles) from the city center.

Japanese and U.S. regulators are probing allegations by
former chief executive officer Michael C. Woodford that more
than $1.5 billion was siphoned through offshore funds. That
money may have been used to cancel out non-performing securities
that Olympus was keeping off its books, according to a report in
the Shukan Asahi magazine, which cited people familiar with the
process.

More Cockroaches

Yesterday’s plunge in Olympus shares pulled other Japanese
equities lower on concerns the country hasn’t escaped corporate
governance weaknesses that have dogged it since the stock market
bubble burst at the end of 1989. Olympus shares have lost 76
percent of their value since Woodford took his accusations
public after he was axed on Oct. 14.

“Institutional investors will stay away from Japan’s
market until they confirm this is an isolated case,” said
Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd. Some
“investors probably think that if there’s one cockroach, there
may be 10 more,” he said.

Olympus’ revelations echo the practice of hiding losses
known as “tobashi” that became widespread in Japan in the late
1980s and led to the failure of Yamaichi Securities Co.,
according to Yasuhiko Hattori, a professor at Ritsumeikan
University in Kyoto. Yamaichi used overseas paper companies to
hide problematic securities until it failed in 1997 with 260
billion yen ($3.3 billion) in hidden impairments.

Brokerage Involvement

Takayama declined to comment on the involvement of any
securities firms in Olympus’ cover-up.

“There is speculation in the market that Nomura may
somehow be involved in this Olympus case,” said Shoichi
Arisawa, an Osaka-based manager at IwaiCosmo Holdings Inc.
“Individual investors in particular probably sold after seeing
a high volume of Nomura’s shares being traded.”

Nomura didn’t participate in Olympus’s concealment of
losses, said Hajime Ikeda, managing director of corporate
communications for the securities firm.

“We are not aware of any involvement by Nomura in
Olympus’s hiding of losses in the 1990s, and we weren’t involved
when Olympus wrote off the losses” between 2006 and 2008, Ikeda
said in a telephone interview in Tokyo yesterday.

Considering Delisting

The Tokyo Stock Exchange said it’s considering moving the
shares in Olympus, the world’s biggest maker of endoscopes, to a
watchlist for possible delisting. Takayama pledged to continue
with the investigation into the losses, which he said were
probably inherited by Kikukawa.

Former President Toshiro Shimoyama has “never heard” of
the hidden losses, the 87-year old retiree, said in an interview
in Tokyo today. It’s “impossible” such losses were passed on
through management changes over the years, said Shimoyama, who
was Olympus’s president until 1993.

“The investigation must continue to determine how much rot
there is,” said David Herro, chief investment officer of Harris
Associates LP. “All responsible must, at a minimum, leave.
Also, since the management’s credibility is nearly nonexistent,
all of what they say must be verified.”

Harris held 10.9 million Olympus shares as of June 30, a 4
percent stake that makes it the company’s second-biggest
overseas investor. Southeastern had a 5 percent stake as of Aug.
16, according to data compiled by Bloomberg.

Bowed in Apology

Olympus President Takayama yesterday said he was unaware of
the hidden losses until he was told by Mori and Kikukawa the
previous evening. At the press conference, he bowed three times
in seven minutes to apologize.

In the weeks running up to his dismissal, Woodford was
engaged in an exchange of letters with Kikukawa and Mori in
which he detailed the allegations and which were copied to all
member of the board.

After he was fired, Woodford went public with his concerns
over the advisory fees and writedowns on three other
transactions. All involved payments to Cayman Islands companies
or special purpose vehicles whose beneficiaries are not known.

Olympus paid 73.4 billion yen to increase stakes in Altis
Co., News Chef Co. and Humalabo Co. between 2006 and 2008, which
was also used to hide losses, it said yesterday. Olympus wrote
down 55.7 billion yen, or 76 percent of the acquisition value,
in March 2009, the company said in a statement Oct. 19.

“It’s beyond belief that Mr. Takayama claims he only found
out about it last night,” Woodford said in a telephone
interview yesterday. “If he didn’t know before I started
writing my letters then he should have known after.”